How to Build your Credit from Scratch

No credit can be just as impactful as having bad credit. Banks and other Loan agencies use your credit history to make decisions on whether to give you a credit card or an extended loan. However if you have no credit history, there is no way of telling how well you can manage debt. Naturally you will find that many lending agencies will not take the chance and lend you money.
This may seem like a mountain to climb but these six steps might change your mind:

Step 1)

Get a secured credit card – The only difference between a Secured and Unsecured credit card is that you are required to make a deposit. This is just to assure creditors you will repay your debt. The limit on this type of card is usually similar or close to your deposit.
Unfortunately, many people get a little confused, thinking it’s just the same as having a Debit card. But they could never be further away from the truth. A debit card is not an extension of credit, and therefore banks do not report debit card usage to credit bureaus. A debit card is merely a convenient way to access the funds in your own bank account.

Step 2)

Charge only what you can afford to pay off in full. Building good credit means consistently demonstrating your ability to repay what you borrow. Your goal is to build trust by showing creditors you can responsibly manage debt.
Do not get caught up in the illusion of having money at your fingertips but practice the principle of “living within your means.” This means only charging small items such as inexpensive meal and gasoline to your card. Be very careful not to charge more than 50 % of your limit each month.

Step 3)

Pay on time every month- This step may prove to be more challenging than the previous steps, yet it can be viewed as the most important. Paying all your bills on time each month is essential to building and maintaining a good credit score, which can easily be damaged by one late payment.

Step 4)

Avoid applying for numerous accounts-The thought of having multiple cards at your disposal seems quiet tempting I’m sure…, but least you forget each time you apply for a credit card or loan, your credit score takes a small hit. Therefore it should be easy to imagine how having numerous accounts would send your credit score plugging to the pit of its untimely death. Before trying to cross The Rio Grande learn how to dance on the river banks by proving yourself worthy of managing one credit card account.

Step 5)

Check your progress by checking your Credit report and score- After six months of timely credit card payments, you must review your history by checking your credit report and score. This will give you a much deeper understanding of your performance. Pay keen attention to the negative and positive factors listed on your report as this will determine the next move forward in building your credit score.

Step 6)

After a year, apply for an unsecured credit card- Twelve months of denying yourself that five- star meal, designer handbag or expensive sneakers might just have paid off. Having made all your monthly payments on time; showing your creditor you can responsibly manage debt, it is now time to push forward and ask your creditor for an unsecured credit card. Making the switch from secure to unsecured frees you from that security deposit obligation, increases your limit and may offer you perks such as reward points.
Remember, patience is essential to your success because life is better with good credit.

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